Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jan 6, 2012

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Whether offered online or in person, payday loans cannot be taken out in states that deem this type of financing illegal. In the event a borrower needs a short-term loan in a state that prohibits payday advances, they should opt for a personal loan. In some instances title loans or installment loans may be accessible too.

The states that prohibit any sort of payday loans are Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Caroline, Pennsylvania, and Vermont. The nation’s capital, Washington D.C., also prohibits payday lenders from operating within its borders.

States with Restrictions to Protect Borrowers

Arizona, Ohio, and New Hampshire do not explicitly prohibit these paycheck advance loans, but they do have very restrictive laws that keep this kind of financing closely monitored and limited.

For instance, Arizona only allows a lender to rollover a loan a maximum of three times. This affords individual borrowers protections from a loan growing into a massive snowball that becomes too difficult to maintain or escape.

Ohio limits the number of times a person can withdraw a payday loan to twice every 90 days. This blocks the common debt traps a person may fall into by taking new paycheck advances out to fund the previous ones. The Buckeye State also limits payday APR to 28 percent, which is extremely low when compared to other states that have APRs ranging from three hundred percent to a limitless percent.

New Hampshire allows a person to take out only one check advance loan at a time with zero rollovers. This means a person who takes out this type of borrowing must pay it off before taking another loan out. Their payday loans are also restricted to a low APR of 36 percent.

All other states have state-specific laws that borrowers should be aware of—especially when obtaining an online loan. This is because many online payday lenders are stationed outside of the state’s in which their services are offered, and sometimes they don’t adhere to the state-specific laws. If payday lenders don’t adhere to the laws unique to a borrower’s state, that borrower may be entitled to a payment reduction on outstanding payday loans.

To browse state-specific laws, visit our State Payday Lending Laws resource.